Article 1, Section 8, Clause 4 (Bankruptcy)
William Blackstone, Commentaries 2:471--731766
X. Bankruptcy; a title which we before lightly touched upon, so far as it related to the transfer of the real estate of the bankrupt. At present we are to treat of it more minutely, as it principally relates to the disposition of chattels, in which the property of persons concerned in trade more usually consists, than in lands or tenements. Let us therefore first of all consider, 1. Who may become a bankrupt: 2. What acts make a bankrupt: 3. The proceedings on a commission of bankrupt: and, 4. In what manner an estate in goods and chattels may be transferred by bankruptcy.
1. Who may become a bankrupt. A bankrupt was before defined to be "a trader, who secretes himself, or does certain other acts, tending to defraud his creditors." He was formerly considered merely in the light of a criminal or offender; and in this spirit we are told by sir Edward Coke, that we have fetched as well the name, as the wickedness, of bankrupts from foreign nations. But at present the laws of bankruptcy are considered as laws calculated for the benefit of trade, and founded on the principles of humanity as well as justice; and to that end they confer some privileges, not only on the creditors, but also on the bankrupt or debtor himself. On the creditors; by compelling the bankrupt to give up all his effects to their use, without any fraudulent concealment: on the debtor; by exempting him from the rigor of the general law, whereby his person might be confined at the discretion of his creditor, though in reality he has nothing to satisfy the debt; whereas the law of bankrupts, taking into consideration the sudden and unavoidable accidents to which men in trade are liable, has given them the liberty of their persons, and some pecuniary emoluments, upon condition they surrender up their whole estate to be divided among their creditors.
In this respect our legislature seems to have attended to the example of the Roman law. I mean not the terrible law of the twelve tables; whereby the creditors might cut the debtor's body into pieces, and each of them take his proportionable share: if indeed that law, de debitore in partes secando, is to be understood in so very butcherly a light; which many learned men have with reason doubted. Nor do I mean those less inhuman laws (if they may be called so, as their meaning is indisputably certain) of imprisoning the debtor's person in chains; subjecting him to stripes and hard labour, at the mercy of his rigid creditor; and sometimes selling him, his wife, and children, to perpetual foreign slavery trans Tiberim: an oppression, which produced so many popular insurrections, and secessions to the mons sacer. But I mean the law of cession, introduced by the christian emperors; whereby if a debtor ceded, or yielded up, all his fortune to his creditors, he was secured from being dragged to a gaol, "omni quoque corporali cruciatu semoto." For, as the emperor justly observes, "inhumanum erat spoliatum fortunis suis in solidum damnari." Thus far was just and reasonable: but, as the departing from one extreme is apt to produce it's opposite, we find it afterwards enacted, that if the debtor by any unforeseen accident was reduced to low circumstances, and would swear that he had not sufficient left to pay his debts, he should not be compelled to cede or give up even that which he had in his possession: a law, which under a false notion of humanity, seems to be fertile of perjury, injustice, and absurdity.
The laws of England, more wisely, have steered in the middle between both extremes: providing at once against the inhumanity of the creditor, who is not suffered to confine an honest bankrupt after his effects are delivered up; and at the same time taking care that all his just debts shall be paid, so far as the effects will extend. But still they are cautious of encouraging prodigality and extravagance by this indulgence to debtors; and therefore they allow the benefit of the laws of bankruptcy to none but actual traders; since that set of men are, generally speaking, the only persons liable to accidental losses, and to an inability of paying their debts, without any fault of their own. If persons in other situations of life run in debt without the power of payment, they must take the consequences of their own indiscretion, even though they meet with sudden accidents that may reduce their fortunes: for the law holds it to be an unjustifiable practice, for any person but a tradesman to encumber himself with debts of any considerable value. If a gentleman, or one in a liberal profession, at the time of contracting his debts, has a sufficient fund to pay them, the delay of payment is a species of dishonesty, and a temporary injustice to his creditor: and if, at such time, he has no sufficient fund, the dishonesty and injustice is the greater. He cannot therefore murmur, if he suffers the punishment which he has voluntarily drawn upon himself. But in mercantile transactions the case is far otherwise. Trade cannot be carried on without mutual credit on both sides: the contracting of debts is therefore here not only justifiable, but necessary. And if by accidental calamities, as by the loss of a ship in a tempest, the failure of brother traders, or by the non-payment of persons out of trade, a merchant or tradesman becomes incapable of discharging his own debts, it is his misfortune and not his fault. To the misfortunes therefore of debtors the law has given a compassionate remedy, but denied it to their faults: since, at the same time that it provides for the security of commerce, by enacting that every considerable trader may be declared a bankrupt, for the benefit of his creditors as well as himself, it has also to discourage extravagance declared, that no one shall be capable of being made a bankrupt, but only a trader; nor capable of receiving the full benefit of the statutes, but only an industrious trader.
Blackstone, William. Commentaries on the Laws of England: A Facsimile of the First Edition of 1765--1769. Chicago: University of Chicago Press, 1979.
© 1987 by The University of Chicago